Making Credit Cards Work For You

      CREDIT CARDS. 

These innocent little slivers of plastic have gotten a bad rep. Not because they’re doing anything evil — but because some people have used them to get into serious debt.

Using them wisely, though, can give you money and other goodies you never would have dreamed of having. Please note: “wisely,” in this case, means paying your card off every single month, without exception. If you can’t do it, don’t get it. The interest you pay will more than cancel out any benefits you receive.

The second-wisest thing you can do is not pay an annual fee. Many credit cards don’t charge for this; in the case of some rewards cards, they’ll waive the first year’s fee. (Fine: use it for a while and see if the extra benefits justify the fee. If they don’t, cancel it just before your first anniversary.)

 What can you get in return for using credit cards?

*Cash back. This is by far the best benefit. In return for making your usual purchases, many cards will give you 1%, 2% – up to 5% back of those costs. (Some, like Discover, have a revolving promotion that emphasizes different items each time. One quarter, for example, it was home improvement stores — another, restaurants.)

These little amounts add up. We charge as many of our basic expenses as we possibly can, pay them off every month — and earn approx. $300-350 extra a year. It’s like getting a month or two of groceries, or a weekend vacation, for nothing.

Amazon even lets you apply cashback rewards to purchases – it cuts down on your final amount, and feels even more like “free” money!

*Travel miles and discounts. My brother used a Carnival credit card for his business, and regularly earned enough points for a free cruise or two every year. Other people use airline credit cards to earn free flights, baggage check-ins and a stop in the frequent flyers VIP clubs. Warning:These cards do generally charge an annual fee. (Although, as mentioned previously, they’ll often waive the first year.) Is it worth it? Depends on how many points you can rack up toward that free flight.

*Discounts for shopping. Many stores, from Target to Neiman-Marcus, offer this as a plus if you apply for their card. Sometimes the discount is only for the first or a limited number of purchases. Sometimes, though, it can be quite substantial. If you’re planning a big-ticket item, getting a new store card may be worth it. Or perhaps take advantage of:

*Interest-free purchases — as long as monthly payments are made. These credit accounts are usually offered with big purchases. Paypal’s “Bill-Me-Later” program works on the same premise: make the set payment on time every month, and you won’t have to pay a cent of interest. This means that laptop or refrigerator is yours to use, while you’re paying it off. But make sure you can do so — miss just one payment by as little as a day, and all the interest gets added back on. Scheduling an automatic payment through your bank (yes, you should have an account!) solves this problem.

*Zero-percent interest, after you transfer your other balances. Many cards make this offer, and it’s a good one, if you’re already carrying a balance on your other credit cards. A consolidation works, though, only if you’re willing to start paying that balance off — and fast. After a certain period, the interest starts mounting again. (Obviously, the credit card companies are hoping that you forget this.) Make sure you know when – and how much.

*Warranties and other buyers’ protection plans. A number of Platinum cards offer a nice plus: they’ll extend your normal warranty on appliances and other items for up to a year longer! That’s 365 days of additional protection for items like televisions, IPods, etc.

Some cards also offer purchase protection. Buy your item, using your card, and if it’s damaged or stole within 90 days of purchase, it’s covered.

*Car rental insurance. I’d always thought everyone knew about this secret benefit. Rent a car, pay for it with your credit card…and you’ve got automatic rental protection, without buying the company’s fancy-pants plan. Note: Sometimes renting in foreign countries isn’t included, or other caveats. Make sure you know exactly what your card will cover.

*Budget help. No, the credit card companies don’t send an accountant over, yellow pencil and calculator in hand. (Darn.) But many companies do provide a year-end report that categorizes your various purchases. At the very least, you can see exactly where you’re spending. And if it’s in categories like eating out, you’ll know where to economize next time.

Cards can also help you spread expenses, especially business ones, over a longer period. Case in point: my ‘other’ business (when I’m not writing for MidLife Finance, that is) involves selling books. My publisher offers a 30-day payment plan. If I buy the books, I’ve got 30 days to pay the publisher. And if I charge that payment just after the cutoff date for the billing period (in my case, it’s the 14th of each month), I’ve got another month to come up with the money, without having to pay interest! That gives me up to 60 days to keep selling books…and accumulating the balance needed to pay the credit card when it comes due.

*Income tax documentation, made easier.  What credit cards are invaluable for, though, are the line expenditures for business expenses. Provided I charge them on my credit card, everything from office supplies to eating out with clients is provided in a nice tidy monthly report. That cuts down on searching for every single receipt, come taxtime. And if I can’t even find the bill on hand, I can print it off from the credit card’s website.

That ease in reporting makes me even more willing to charge everything possible. (Not to mention I get cash back, every time I do!)

*Improvements on your credit score. Keep a card or two, pay them off responsibly, and you’ve automatically improved your credit score. Which then means you can get better interest rates on automobile and homeowner’s loans, as well as all sorts of other financial goodies. (Not to mention that companies sometimes use this as a way to double-check your value as a prospective employee.)

How can you find the best credit card for your particular needs? Try a website that compares various cards, not only for good interest rates and rewards, but for your particular situation — bad credit, still a student, no (or low) annual fees, and the best rewards. Two sources are particularly helpful: Creditnet.com and Bankrate.com. Both offer credit card comparisons that let you compare for a variety of factors. (Bankrate.com is also an excellent spot for checking the best rates and promos for CDs, savings and checking accounts.)  Remember: the better your credit score, the more you can argue for lower interest rates and extra privileges. Be sure to read the fine print on whichever card you choose, before you commit to anything.

     Credit cards can be a wonderful help — provided you use discipline, get the cards best suited to your needs, and pay them off. Every single month.